Resources tax to pay for superannuation, and small business concessions and company tax cut

In the first wave of a 10 year agenda the Government proposes to introduce a Resources Super Profits Tax to fund concessions for company and small business taxes, and superannuation. Other proposals being considered by the Government include making tax time simpler and improving incentives to save. The Government has also announced the recommendations which they have specifically rejected and will not implement at any stage.

Company tax rate reduced
In response to the Henry Report recommendation to reduce the company tax rate to 25%, the Government has proposed the company tax rate be reduced from 30% to 28% in two stages starting from July 2013. However, for eligible small business companies the 28% rate will apply from 1 July 2012. The rates will occur in two stages as follows:

Income year

Normal company tax rate

Small business rate

2011-12 (i.e. current tax rate)

30%

30%

2012-13

30%

28%

2013-14

29%

28%

2014-15

28%

28%

The reduction in the company tax rate will be funded through the introduction of the proposed Resources Super Profits Tax.

At this stage the Government has not indicated what companies will qualify as "eligible small business entities", however they are expected to consult on the implementation details of this measure before preparing exposure draft legislation.

Small business immediate asset write-off

The existing capital allowance deductions available for small businesses will be expanded. From 1 July 2012, small businesses will be allowed:

an immediate deduction for assets valued at less than $5,000 (currently $1,000); and

a deduction for all other assets valued at $5,000 or more (except buildings) by including them in a single depreciation pool at a rate of 30% per annum. Currently, assets can be allocated to two different pools according to their effective life – i.e. a general pool at a diminishing value rate of 30% per annum or a long-life pool at a diminishing rate of 5% per annum.

Superannuation changes

Super guarantee rate increase

Despite no specific recommendation about the super guarantee rate in the Henry Report, the Government is proposing to gradually increase the rate from 9% to 12%, phasing the increase in from 1 July 2013. This will be achieved by increasing the percentage by 0.25% per year in the first two years and 0.5% thereafter.

Super guarantee increases

Year commencing

Super guarantee rate

1 July 2012 (i.e. current rate)

9%

1 July 2013

9.25%

1 July 2014

9.5%

1 July 2015

10%

1 July 2016

10.5%

1 July 2017

11%

1 July 2018

11.5%

1 July 2019

12%

Super guarantee age limit raised

In line with the Committee's recommendation, the Government is proposing to increase the super guarantee age limit from 70 to 75, with effect from 1 July 2013. Consequently, contributions will need to be made up until an employee turns 75 years of age.

Currently, the super guarantee only apples to people aged up to 70 years but employers can make voluntary deductible contributions for employees under the age of 75. Self-employed people can make deductible contributions until the age of 75.

Concessional contributions caps to continue

From 1 July 2012 onwards, individuals aged 50 and over with total superannuation balances below $500,000 will be able to make up to $50,000 in concessional super contributions. This extends the $50,000 cap that was due to expire on 30 June 2012 and doubles the cap of $25,000 which is scheduled to apply from 1 July 2012.

Individuals under 75 years of age will still be able to make non-concessional super contributions up to $150,000 per year. Individuals under 65 years of age can also bring forward two years' worth of non-concessional contributions, allowing them to contribute up to $450,000 of non-concessional contributions in any three-year period.

$500 Government super contributions From 1 July 2012 the Government will provide a super contribution of up to $500 annually for individuals earning up to $37,000. The amount will be paid into the individual's super fund. The amount payable will be calculated by applying a 15% matching rate to the concessional contributions made by or for the individual. This means concessional contributions made from 1 July 2012 will be eligible for the first Government contribution to be paid in 2013-14.

Currently all concessional super contributions are taxable in the fund at a flat rate of 15%. This measure ensures no tax will be paid on super guarantee contributions for individuals with incomes up to $37,000 in the 2012-13 year.

Resource Super Profits Tax introduced

To fund the above concessions the Government will implement the Committee's proposal to introduce increased taxation for the resources sector.

Resource Super Profits Tax (RSPT)

The Government proposes to introduce on 1 July 2012 a Resource Super Profits Tax at the rate of 40% on profits made from the exploration of Australia's non-renewable resources. The RSPT will apply to all legal entities including companies, partnerships and trusts.

The announcement to introduce a RSPT is generally consistent with the recommendations of the Committee. The RSPT will be imposed at 40% on a taxable amount derived after taking into account extraction costs and an appropriate recoupment of capital investment (proposed to be the 10 year bond rate).

Credit for State Royalties

Where State based royalties are paid the taxpayer will be entitled to a refundable credit for the State royalties, but it will be capped to the current royalty rate, including scheduled increases.